Early last year Illinois health officials were rocked by a budget crisis: Scores of the state’s Medicaid patients suffering from the potentially lethal Hepatitis C virus were bombarding them with requests for Sovaldi, the costly new specialty drug boasting an extraordinary cure rate.
The $94,000-per-patient cost threatened to blow a massive hole in the state’s budget just as the governor at the time, Pat Quinn (D), and the legislature were struggling with a major deficit and with pension program shortfalls. Express Scripts estimated the new drug could make spending on Hepatitis C treatment jump to nearly 9 percent of the state’s Medicaid budget.
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Sure enough, spending on Hep-C treatments surged once Solvadi hit the market. The state spent nearly $19 million on Sovaldi alone last year, compared to the $6.7 million the state spent on all Hep-C treatments in 2013 before the new drug was available.
As drug spending climbed, the Department of Healthcare and Family Services swung into action. It adopted some of the strictest guidelines in the country for qualifying for the Sovaldi treatment. It denied funding for any but the sickest patients with liver disease and disqualified many who had a history of drug use and alcohol abuse.
When the dust settled, spending on Hep-C treatment plummeted from $1 million per week to about $200,000 a week after the department adopted the new standards. In 2014, just 208 Medicaid patients received Sovaldi.
This year so far, only nine people have been approved for Sovaldi, racking up a bill of $264,927 for the state in January and February. Meanwhile, 39 Medicaid patients were approved to receive Harvoni, the other promising Hep-C drug from Gilead, at a cost of roughly $1.8 million over that same time period, according to the Illinois Department of Health and Family Services.
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Arvind Goyal, medical director of that Illinois agency, told The Wall Street Journal last year that as a public official, he was torn between addressing the medical needs of hundreds of thousands of Medicaid patients suffering from liver disease – and responsibly overseeing government spending.
“You can do rationing blindly where your purpose is to only cut cost and not worry about anything else, or you can do so in a manner where you don’t hurt the patient and in a reasonable fashion where it serves the most people in the most compassionate manner,” he told The Journal last year.
The runaway cost problem also surfaced last year when the Department of Veterans Affairs, the federal prison system and other public institutions complained about the fast-rising cost of popular specialty drugs like Sovaldi and Harvoni to treat the dreaded liver virus.
Congressional hearings held at the time by Sen. Bernie Sanders (I-VT) revealed that many state Medicaid programs were also struggling with the same problem.
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Express Scripts estimated it would cost state governments $55 billion a year to provide this level of treatment to the roughly 750,000 Americans struggling with chronic Hepatitis C. These patients currently receive state-funded health care through Medicaid or the prison system.
Overall spending on specialty drugs is expected to increase by 360 percent between 2012 and 2020. Meanwhile, Medicaid and Medicare will see spending on these new drugs far eclipse spending for non-specialty pharmaceuticals, according to an analysis by PricewaterhouseCoopers Health Research Institute.
As that figure rises, more states will need to make difficult decisions about who gets the treatment and who doesn’t.
“In some respects, it’s probably a little bit harder for Medicaid to make a decision to not cover one of these therapies than probably some private insurers, because private insurers can do a lot more with the tiers in their formularies as well,” said Ceci Connolly, managing director of PricewaterhouseCoopers Health Research Institute. “So there is the potential for these to become Medicaid budget busters, no doubt.”
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Gilead, the pharmaceutical company, claims $1,000 a pill is a fair price for the money it spent developing Sovaldi and Harvoni. The company has negotiated deep discounts – reportedly 40 percent – for the VA, the largest provider of care for those with chronic Hepatitis C infections.
“We believe the price of Harvoni and Sovaldi reflects the value of the medicine,” Michele Rest, Gilead’s public affairs director, said in an interview last year. “Unlike long-term or indefinite treatments for other chronic diseases, Harvoni and Sovaldi offer a cure at a price that will reduce Hepatitis C treatment costs in the short term and deliver significant health care savings to the health care system over the long term.”
The specialty drug industry is coming under growing criticism for price gouging – and it may be just a matter of time before it reaches an accommodation with the government and with consumer advocates.
The bright light, however, is that there is some new competition in the market. States have been clamoring to negotiate deals with either Gilead Sciences for Sovaldi or Abbvie Inc.’s Vikeria Pak, a similar wonder drug that was introduced last year.
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So far, Gilead’s Sovaldi has dominated the market – earning the title of fastest selling drug in history. It reportedly raked in $8.6 billion in the first nine months of 2014. Still, Abbvie is quickly gaining momentum since federal regulators approved it in December. Abbvie’s chief executive officer Rick Gonzalez told Forbes in January that he expects to get access to 40 percent of insured people with Hepatitis C this year.
Medicaid programs may be particularly hard hit because they’re likely to cover a higher proportion of patients with the Hepatitis C virus and cannot raise premiums as commercial insurers can, according to some reports.
“This is a big ticket item and it’s a big issue,” said Matt Salo, executive director of the National Association of Medicaid Directors. “States continue to be highly concerned about the trends and the future of spending in this area.”
Robert Weissman, president of Public Citizen, a citizen advocacy group, said in an interview recently, “Rationing is here now, in the private sector and in the public sector.”
“If the treatments prove to be as exciting and important as some of the initial results suggest, there is a very large patient population that should be treated, and only some of them are going to be,” he said. “In a world in which price wasn’t an issue, you’d get it to more people and earlier. The standing price means you get it to way fewer people and way later.”
Every state is entitled to set its own standards for providing these drugs – meaning the randomness of where you live will determine which product you can receive in coverage.
“So it won’t be a medical decision, it will be a price-based decision,” Weissman said. “That in itself is a form of rationing.”
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